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February 7, 2018 - Source: King & Spalding Energy Newsletter

Landmark UK Case Takes A Stand: Parent Companies May Be Liable For Their Subsidiaries’ Alleged Human Rights Abuses

A landmark United Kingdom case recently has made it clear that UK-based parent companies may be found liable for human rights violations committed by their foreign subsidiaries. Plaintiffs all over the world are filing lawsuits seeking to hold parent companies responsible for the extraterritorial conduct of their subsidiaries. The UK courts have determined that such lawsuits may be filed in the UK courts against UK parent companies. Cases on this issue are pending in United States and Canadian courts. The outcome of these cases have high-stakes consequences – they could open the door to an increasing number of lawsuits filed against companies for alleged failure to comply with human rights standards at all levels of the corporate structure.

In a landmark judgment, which the Oxford University Press named one of their “top ten developments in international law in 2017,”1Merel Alstein, Top Ten Development in International Law in 2017, OUPblob Oxford University Press (Jan. 2018), available at: a United Kingdom Court of Appeals permitted 1,826 Zambian villagers to bring a claim in the English courts against UK-based Vedanta Resources Plc (“Vedanta”) and its Zambian subsidiary, Konkola Copper Mines Plc (“KCM”). The court in Lungowe and Ors. v Vedanta Resources Plc and Konkola Copper Mines Plc further decided that Vedanta could be held responsible for KCM’s alleged human rights abuses. The affected parties claimed negligence and alleged that waste discharged from the Nchanga copper mine, which was owned and operated by KCM, had polluted the local waterways, causing personal injury to the local residents along with damage to property and loss of income. The claims also related to breaches of applicable Zambian environmental laws.

The court reasoned that the case could proceed in UK courts given Vedanta’s high level of oversight over KCM and the impossibility of a fair trial in Zambia. While Vedanta neither owned the mine nor controlled the material operation of the mine, the court found that Vedanta had sufficient oversight over KCM, given that it had: 

  • published a sustainability report which stressed that oversight of all Vedanta's subsidiaries rested with the Board of Vedanta itself;
  • entered into a management and shareholders agreement under which it was obligated to provide various services to KCM, including employee training;
  • provided health, safety and environmental training across its group companies;
  • provided financial support to KCM;
  • released various public statements emphasizing its commitment to address environmental risks and technical shortcomings in KCM’s mining infrastructure; and
  • exercised control over KCM, as evidenced by a former employee. 

The decision to allow the UK courts to hear this case underscores the need for companies operating globally to be aware of the possibility that international claimants may be able to bring cases against UK companies, as well as foreign subsidiaries, in the UK courts, and the possibility that the scope of potential claimants will be broadened to include communities affected by the alleged human rights violations of local subsidiaries. This development is a part of an emerging trend of affected parties seeking to hold parent companies liable for the actions of their subsidiaries for a range of human rights violations.

Vedanta joins cases like Maxima Acuña-Atalaya v. Newmont Mining Corp. and Araya v. Nevsun Resources reminding companies that courts may hold parent companies responsible for alleged overseas misconduct of their foreign subsidiaries. Newmont, a case premised on the claim that that an American mining company may be responsible for the role its Peruvian subsidiary played in using violence and threats to try to evict the claimant from her home to clear the way for a mining project, is currently awaiting the decision as to whether the case may be heard in Delaware courts. Nevsun, a suit against a Canadian mining company, in which the claimant is alleging human rights abuses against foreign workers at an Eritrean mine partially (60 percent) owned by the Canadian company, is currently on appeal in the British Columbia Court of Appeals, on the question of whether such a suit may be heard in a Canadian court.

The question of whether such claims may be heard in United States courts is currently being decided in Jesner v. Arab Bank, a case pending before the U.S. Supreme Court. The decision will clarify whether the Alien Tort Statute (ATS) – a statute that allows U.S. federal courts to hear cases brought by victims of egregious human rights abuses pertaining to acts committed abroad— categorically forecloses corporate liability for human rights abuses.

Companies operating abroad should take note of this trend and begin implementing best practices to ensure that human rights are respected and protected in every link of their chain of operation, and in every one of their subsidiaries. The trend shows no sign of subsiding, and more and more lawsuits are being filed in courts and are also being played out in the court of public opinion. Companies should conduct human rights due diligence to manage risks of human rights violations at all levels of the supply chain and corporate structure.